The Economic Way of Thinking 13th Edition by David Prychitko, Peter Boettke, Paul Heyne

Exercise 11

Perhaps you are familiar with the story of Joseph in the Book of Genesis. Joseph had an inspired interpretation of the Pharaoh's dream: Egypt will enjoy seven years of abundant crops, he told the Pharaoh, followed by seven years of severe famine that would sweep across all of Egypt. Joseph advised the Pharaoh to collect one-fifth of the grain crop during the abundant years and hoard it under guard, to be held as a reserve against the impending seven years of famine. The Pharaoh was so impressed with this insight that he appointed Joseph to discharge the plan. He did so, and during the famine, Joseph reopened the granaries and sold it to the Egyptians. Compare Joseph's actions to those of modern-day speculators who predict a greater scarcity of grain in the future.
(a) What was Joseph intentionally trying to accomplish?
(b) What do professional speculators intentionally try to accomplish?
(c) What effect did Joseph's actions have on the supply curve of grain when he hoarded it and kept it under guard?
(d) What effect do professional speculators have on the current supply of grain when they enter contracts that promise to sell grain only in the future?
(e) What effect did Joseph's actions have on the supply of grain during the famine period?
(f) What effect do professional speculators have on the supply of grain in the future period?
(g) Are the outcomes substantially different?
(h) Finally, what was the source of Joseph's information, and what is the source of the professional speculators' information?